Although user-generated content is making waves in the entertainment industry, DirecTV president and CEO Chase Carey says that the event programming of broadcast television is not going away. No stranger to forces of change, Carey has a vision of the new media world that’s firmly grounded in tenets that have guided him through top positions at News Corp. and Fox, as well as more recently in his current role. Carey recently spoke with The Hollywood Reporter contributing editor Diane Mermigas about what’s in store for his company and the industry over the next five years.
The Hollywood Reporter: How do you see the future of entertainment in terms of content and distribution?
Chase Carey: In terms of content, I think what you will see is continued fragmentation. That personalized or much more narrowly targeted content will replace mass content — I don’t buy that. I think it will be part of the mix. But I don’t think people will be watching (YouTube.com) rather than (Fox’s) “American Idol.” Instead, people get home from work at 7 p.m., they watch a couple of funny clips on YouTube and then sit down to watch “American Idol.” I don’t think one will replace the other.
THR: Could user-generated content threaten the credibility, value or economic viability of commercially generated content?
Carey: The market enlarges to embrace new options. Television networks are still major vehicles, even though today they have far less of the audience share. What stands to be impacted most is marginal content and middle-of-the-road programming. High-quality content will be more successful, and as audiences fragment, the more mediocre or middle-of-the-road content anywhere is more likely to feel the pain than a particular genre.
I don’t hold the view that everyone is going to live in their own little world. Everyone is part of some community.
THR: Does increased access to new grassroots talent threaten the existing industry sectors of television, film, publishing and music?
Carey: I think the more opportunities you have to provide a wider playing field for people to take shots — even long shots — is a good thing. It’s a little bit of a double-edged sword. How does talent get discovered when there is more and more user-generated and other content? Competition will ferret it out, and those that are better or more interesting will rise out of that mix. On the distribution side, the issues of how to find things — search, data, personalization and targeting are all important. There will be increasing value in being able to watch what you want, where you want, the way you want. That is what (digital video recorders) provide. I think mobility is an increasingly important part. Mobile services of all kinds are core. Distribution will have to provide
all of it.
THR: That underscores a level of interactivity that so many, including satellite providers in the U.S., are scrambling to provide. How important is it to be able to provide more advanced interactivity at the same pace you are providing high-definition content?
Carey: High definition is an emerging technology. Next year, we will have HD capability on 150 channels and all local channels. And the number of HD households is at around 1 million homes (by current estimates). This Christmas, you will see a tremendous amount of promotion by consumer electronics and retail industries around HD sets. HD will be an arena of tremendous growth, and I think very quickly, you will see 20%-30% of the high-end market deploying and looking for HD. There are various projections that by 2008, (HD will) have 30%-40% of the market.
THR: What about more-sophisticated levels of interactivity?
Carey: Interactivity in the form of video-on-demand and other services is more complicated. The way we will build it out will be a marriage of storage capability and broadband. There will be a disc in the home — the capacity of which will include from 160 hours today to 700 hours in 2007 and then 1,000 hours — that you will push down product to. Marry that to the box’s ability to have broadband access to a wider long tail that you haven’t pushed to a box to date. So, if consumers want something that is a more narrowly focused esoteric product, they can access it and store it, and it seamlessly comes down from the satellite to whatever device or platform you wish. And it is married to a broadband connection that will provide a wider array of choice. The ability to have more options in the home will create a more reliable infrastructure — one that is not dependent upon at-home use. Another issue is how well the out-of-home infrastructure is built up to service it. We think we will have a very competitive device and service.
THR: What other new services and forms of technology will you concentrate on?
Carey: I think entertainment program guides, search tools and more personalized and user-friendly functionality will be very important.
I think one of the greatest risks of technology is that you fall in love with the technology and forget that most consumers are interested in easy and reliable devices. They don’t want to have to call their 16-year-old son to program it for them. We’ll have the software needed to enable that basic version of those in homes by the end of this year and expand from there. The boxes already are in the homes, so we will be developing more broadband to bundle with video.
THR: Do you see increased niche programming prompting more of an on-demand, a la carte kind of arrangement?
Carey: VOD will have a bigger part of the mix, but I think it will take time. I think people underestimate consumer habits. Technology moves faster than people and industries change, and you need to get the right content in place for the delivery options you have available. I think you will have more choice because there will be more fragmentation. The discussion around a la carte today suggests better value, but I think that packaging today provides better value to consumers. We will continue to look for new ways to
provide more choice and more add-ons to provide a deeper, richer set of experiences.
THR: Over the next five years, will cable still be your toughest competitor?
Carey: It will still be cable. I think the phone companies will struggle, and I don’t buy (Internet-protocol television) and Internet and Internet services for the telcos in that time frame. The richer, deeper experience we and the cable guys will provide in HD is something you will want to watch on a 60-inch screen. There is a lot of convergence talk and, yes, there is convergence. But I think (our) features and functionality result in the kind of content you more likely will want to watch on a big screen than on a PC. That said, the television will continue to have more search capabilities and other functionality than a PC does. The PC will have video quality more like a (standard-definition) TV. But the world of IPTV is still in its early stage.
THR: What are the increased revenue streams for you and satellite in general in this country, and where does most of your revenue continue to come from?
Carey: You certainly will have a competitive marketplace in terms of pricing and service. But our business will be very healthy, and it will force us to consider how to maximize cost savings and efficiencies in light of the price of equipment declining two or three times from where it was just a year ago. And that will enable us to do more. On the flip side, I think we will continue to have a lot of growth opportunities in this business, whether it is in VOD or advertising or transactions. I think some of the money we make will come out of other mediums because we are a better, more attractive vehicle. I think we can take a disproportionate share of money being spent in other places, whether by advertisers or consumers, on other mediums like print, videos or DVDs. Our revenue will continue to be predominantly subscriptions, but I think that advertising will be double (what it is today). Other new fee-based businesses such as transactions and VOD (also) will provide a very good level of ongoing growth, even though they will take time to develop. But that is why you need to be equally as diligent on the cost side.
THR: What byproducts of this digital broadband transition do you think will occur that a lot of people are not thinking about?
Carey: I think there could be some form of corporate restructuring that redefines the business. There could be some mergers and acquisitions a year or two from now that change the competitive dynamic because, after initially transitioning into this new era, companies at either end of the media and entertainment spectrum decide they might be able to accomplish more together than they can apart. Something like a Google and a Comcast or a Comcast and a Sprint that would combine some unique enough assets in a way that redefines the game. But having the opportunity does not mean the execution is there, as many players have shown.
THR: How will your broadband strategy play out, whether or not Liberty Media acquires News Corp.’s controlling stake in DirecTV?
Carey: It’s too fluid to know for now. There will be a major wireless broadband business with more than one player in it five years from now. But we are a natural fit for them all. For instance, a wireless service has advantages in mobility but does not want to handle the high-capacity video that we handle. So, together we can create very vibrant, optimized capabilities. We are working with wireless broadband players like the telcos now, but we would like to support new players in broadband because it is good for competition.
THR: Is a merger inevitable with EchoStar Communications Corp.?
Carey: There is an opportunity. There are synergies and savings and complexities you get by putting the two companies together. But I don’t think you have to put the two companies together in order to remain competitive. You have to wait until the whole world shakes out. You have to wait and see what AT&T, Verizon, Sprint and the other players will be doing in five years.